Korea's economy grows 0.6% in Q2 on strong chip exports, beating forecasts

Containers are stacked at a port in Pyeongtaek, Gyeonggi Province, July 1. Yonhap

Korea’s economy expanded 0.6 percent in the second quarter from the previous quarter, extending its stronger-than-expected recovery on the back of booming semiconductor exports and a rebound in domestic demand despite Middle East-related risks, the Bank of Korea (BOK) said Thursday.

The back-to-back surprise expansions in the first and second quarters have raised the prospect of annual growth exceeding 3 percent, which would mark the fastest pace in five years.

Preliminary data from the central bank showed that real gross domestic product (GDP) rose 0.6 percent in the April-June period. The reading beat both the median market forecast of 0.3 percent and the BOK’s own projection of 0.2 percent for the quarter.

Quarterly growth rebounded sharply from a 0.1 percent contraction in the fourth quarter of last year to 1.8 percent in the first quarter, before maintaining a solid pace in the second quarter despite a high base effect.

The expansion was supported by a 1.4 percent increase in exports, driven by semiconductors and machinery and equipment, while private consumption rose 0.4 percent and facility investment edged up 0.2 percent. Construction investment slipped 0.2 percent.

Lee Dong-won, director general of the BOK's economic statistics department, explained that while the Middle East conflict had hurt production and employment, government measures to stabilize naphtha supplies, swap crude oil reserves and diversify import sources helped cushion the economic fallout from the Middle East conflict.

Lee Dong-won, director general of the Bank of Korea's economic statistics department, speaks during a briefing on the second-quarter 2026 preliminary GDP data at the central bank’s headquarters in Seoul, Thursday. Courtesy of Bank of Korea

"The country's annual growth could reach 3 percent even if the economy expands an average of minus 0.1 percent in the third and fourth quarters," he said. "If achieved, it would mark the fastest annual growth since 2021, when the economy expanded 4.7 percent."

He added that growth may slow in the second half as the gap between semiconductor export gains and energy import costs narrows, but a contraction is unlikely.

Meanwhile, real gross domestic income (GDI), a measure of the purchasing power generated by domestic production, rose 3.6 percent from the previous quarter and 15.6 percent from a year earlier, reflecting an improvement in the terms of trade.

The 15.6 percent gain was the biggest increase since the first quarter of 1988, when real GDI jumped 16.4 percent, marking a 38-year-and-three-month high.

A notable feature of the latest economic expansion was that real GDI rose much faster than GDP.

Lee said real purchasing power rose more sharply than production volumes, as higher export prices boosted income from overseas sales.

“Even with the same level of output, income increased significantly as semiconductor prices rose,” he said.

Better-than-expected GDP and GDI growth has bolstered expectations for the BOK to raise its benchmark rate again in August, following its previous hike. The central bank raised its rate by 25 basis points to 2.75 percent on July 16, marking a shift from an easing to a tightening monetary policy stance for the first time in three and a half years.

Earlier, BOK Gov. Shin Hyun-song said the central bank would consider second-quarter real GDI growth and other data when deciding whether to raise its policy rate next month.

"The chances of a back-to-back rate hike have grown as rising oil prices fueled by renewed Middle East tensions coincide with stronger-than-expected second-quarter growth," said Cho Yong-koo, an analyst at Shinyoung Securities.